The Department for Transport announced today that it would not allow National Express to extend the East Anglia franchise beyond March 2011, when it comes up for renewal.

Today's move led to renewed calls from rail unions for a wholesale renationalisation of the network. The RMT union argued that the government must end the "chaos, instability and waste" of privatisation by taking franchises back into public hands.

"The time has come to call a halt to the rail privatisation disaster. The long slow death of National Express as a UK rail operator should trigger a policy shift back to public ownership which would bring the politicians into line with the wishes of over 70% of the British people in a recent poll," said Bob Crow, the RMT's general secretary.

The decision will cost National Express three years of profits from the East Anglian franchise, which runs services from London's Liverpool Street station to towns and cities including Peterborough, Cambridge, Norwich, Great Yarmouth, Ipswich and Chelmsford. The DfT will start looking for a new operator to run the services immediately, so that a new franchise can begin in April 2011.

Lord Adonis, the transport secretary, said National Express had forfeited the chance to keep control of the East Anglian services until 2014 when it decided in July that it could no longer afford to operate the east coast franchise, which runs trains from London's King's Cross to the East Midlands, Yorkshire, the north-east of England and Scotland. Adonis confirmed the company had otherwise hit performance targets needed to ensure a renewal.

"My overriding concern has been to minimise disruption to passengers and staff, and cost to the taxpayer, while ensuring that train companies stand by their commitments," he said.

The decision indicates that National Express will also lose its C2C franchise – serving London, Tilbury and Southend – when the current contract ends in 2011.

Liberal Democrat transport spokesman Norman Baker said: "This is a curious decision in danger of satisfying nobody. The government is formally declaring National Express a lame-duck franchise while telling passengers that they're going to have to put up with them for another two years.

"Clearly, the government's intention is to end National Express's involvement in the rail network. What hope is there that the company will deliver a decent service when they're operating under sentence of execution?"

National Express surrendered the east coast line after concluding that it could not afford the £1.4bn cost of the franchise. It had originally argued that it could still keep running its other rail services despite the move – but Adonis has been determined to take a tough approach.

However, National Express is understood to be pleased to have avoided the immediate seizure of the East Anglian services, which could have sparked a messy fight in the courts.

Some City experts believed the decision was positive news for National Express. "After very confrontational rhetoric from Lord Adonis about cross-default at the time National Express announced its intention to return the east coast franchise to the government, we believe that today's statement represents something of a climb-down," analysts at Cazenove wrote in a research note.

National Express, which is trying to raise £360m from its shareholders and
issued a profits warning in October, also claimed it had run the East Anglia service well. "While this decision was expected, given the event of the default of the National Express east coast franchise, the company is disappointed given the excellent improvement in performance delivered by the group over the past five and a half years of operating the franchise," it said.